OBJECTIVES: Institutions participating in the Medicare Bundled Payments for Care Improvement (BPCI) initiative invest significantly in efforts to reduce readmissions and costs for patients who are included in the program. Eligibility for the BPCI initiative is determined by diagnosis-related group (DRG) classification. The implications of this methodology for chronic diseases are not known. We hypothesized that patients included in a BPCI initiative for chronic obstructive pulmonary disease (COPD) would have less severe illness and decreased hospital utilization compared with those excluded from the bundled payment initiative. STUDY DESIGN: Retrospective observational study. METHODS: We sought to determine the clinical characteristics and outcomes of Medicare patients admitted to the University of Alabama at Birmingham Hospital with acute exacerbations of COPD between 2012 and 2014 who were included and excluded in a BPCI initiative. Patients were included in the analysis if they were discharged with a COPD DRG or with a non-COPD DRG but with an International Classification of Diseases, Ninth Revision code for COPD exacerbation. RESULTS: Six hundred and ninety-eight unique patients were discharged for an acute exacerbation of COPD; 239 (34.2%) were not classified into a COPD DRG and thus were excluded from the BPCI initiative. These patients were more likely to have intensive care unit (ICU) admissions (63.2% vs 4.4%, respectively; P <.001) and require noninvasive (46.9% vs 6.5%; P <.001) and invasive mechanical ventilation (41.4% vs 0.7%; P <.001) during their hospitalization than those in the initiative. They also had a longer ICU length of stay (5.2 vs 1.8 days; P = .011), longer hospital length of stay (10.3 days vs 3.9 days; P <.001), higher in-hospital mortality (14.6% vs 0.7%; P <.001), and greater hospitalization costs (median = $13,677 [interquartile range = $7489-$23,054] vs $4281 [$2718-$6537]; P <.001). CONCLUSIONS: The use of DRGs to identify patients with COPD for inclusion in the BPCI initiative led to the exclusion of more than one-third of patients with acute exacerbations who had more severe illness and worse outcomes and who may benefit most from the additional interventions provided by the initiative.